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Do Subsidies to Commercial R&D Reduce Market Failures? Microeconometric Evaluation Studies


  • Klette, T.J.
  • Moen, J.
  • Griliches, Z.


A number of market failures have been associated with R&D investments and significant amounts of public money have been spent on programs to stimulate innovative activities. In this paper, we review some recent microeconometric studies evaluating effects of government-sponsored commercial R&D. We pay particular attention to the conceptual problems involved. Neither the firms receiving support, nor those not applying, constitute random samples. Furthermore, those not receiving support may be affected by the programs due to spillover effects which often are the main justification for R&D subsidies. Constructing a valid control group under these circumstances is challenging, and we relate our discussion to recent advances in econometric methods for evaluation studies based on non-experimental data. We also discuss some analytical questions, beyond these estimation problems, that need to be addressed in order to assess whether R&D support schemes can be justified. For instance, what are the implications of firms' R&D investments being complementary to each other, and to what extent are potential R&D spillovers internalized in the market?.

Suggested Citation

  • Klette, T.J. & Moen, J. & Griliches, Z., 1999. "Do Subsidies to Commercial R&D Reduce Market Failures? Microeconometric Evaluation Studies," Papers 16/99, Norwegian School of Economics and Business Administration-.
  • Handle: RePEc:fth:norgee:16/99

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    References listed on IDEAS

    1. Jean-Jacques Laffont & Jean Tirole, 1993. "A Theory of Incentives in Procurement and Regulation," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121743, January.
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    JEL classification:

    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General


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